Last week: The economy is slow and not picking up momentum. Latest data from The Conference Board Leading Economic Index® for the United States suggest that GDP and job growth will be slow through the end of the year. Business investment is a little stronger than consumer spending. Export growth has been even stronger, although offset by even faster imports. When two-thirds of economic activity is expanding at a snail’s pace, it’s hard to develop forward momentum, especially when there is little help from fiscal or monetary policy. And as pointed out earlier this summer, with little help from Washington, states and cities are busy closing budget deficits (big deficits in several cases), after having raised taxes or slashed services in each of the past two fiscal years.

THE SITUATION ABROAD

The German economy grew by 2.2 percent in the second quarter. While that is a third slower than China, it does represent the strongest economic performance among the industrialized economics. Exports were an important factor in the rise. The rest of the continent is rising, on average, at about half that pace. Germany will probably slow to the pace of the rest of Europe. It’s less likely that the rest of the continent will speed up to match Germany’s performance. The ZEW Economic Research Institute released its latest findings, which show that the Economic Expectations Index fell to 14 in August, from a reading of 21.2 in July. Does a falling tide lowers all boats?

FACT OF THE WEEK

20 percent. Losing a job can have a long-term impact. Till von Wachter, an economist at Columbia University asserts, “The average mature worker losing a stable job at a good employer will see earnings reductions of 20 percent lasting over 15 to 20 years.” Skill set and development are critical in determining whether one loses more than that, or less. However, workers in the middle of the skill-set distribution are the ones at the biggest risk of a sustained loss in earnings. For different reasons, those at the top and the bottom of the distribution recover more quickly. Those at the top tend to find a new job more quickly. Those at the bottom didn’t lose that much and tend to start over, but at minimum wage jobs. Those caught in the middle are the ones who either stay jobless longer, or go back to work at a lower wage. Also, their skills are most easily substituted by IT.

QUESTION OF THE WEEK

If innovation is the key to future economic growth, are there ideas on the drawing board from which new innovations might spring?

There has not been any shortage of ideas. In fact, as the accompanying chart shows, patent applications remain strong. The problem right now is the lack of opportunity to develop ideas into new processes, new products, or new services. Demand is simply not strong enough to deliver the kind of return on investment it would take to justify implementation.

But the economy will not stay this slow forever. And when demand does begin to rise more moderately, on a sustained basis, the market is likely to be robust enough to induce investors to commit their capital to projects. Moreover, the rise in consumer saving now could provide the capital to fund the development of patented ideas tomorrow. The patented ideas might center on cleaner energy or medical breakthroughs, or in other areas. What is clear, however, is that tomorrow’s economy will benefit from new ideas, new services, and new products associated with today’s innovative ideas.